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Ambiguity Case Analysis

Every first year law student learns the quote of Oliver Wendell Holmes that, “you can always imply a condition to a contract.” Had the court decided this case otherwise, it would have been good law in Wisconsin to paraphrase the quote to, “you can always find an ambiguity in an insurance contract.”

Instead, the court has put limits on what constitutes an ambiguity, stating, “Ferreting through a policy to dig up ambiguity should not be judicially rewarded.”

In doing so, and reversing the court of appeals, the court casts doubt on the precedential value of several other court of appeals’ decisions, as well, even though the court does not expressly overrule any.

Most questionable is Stubbe v. Guidant Mut. Ins. Co., 2002 WI App. 203, 257 Wis.2d 401, 651 N.W.2d 318. In Stubbe, the court of appeals held that an umbrella policy was ambiguous, and therefore, supplements the insured’s UIM coverage in another policy. As in the case at bar, there was no directly conflicting language, but only negative implications from references to UIM coverage.

Admittedly, there is no reason for the insurer to even include references to UIM coverage in an umbrella policy. Nevertheless, assuming that the insured has even the most primitive understanding of what he is purchasing when he contracts for umbrella coverage, no reasonable insured could think that first-party UIM coverage is included.

The Supreme Court stated that subjective expectations do not control an insurance contract. Nevertheless, the same line of reasoning that the court used to conclude that the Folkmans could not reasonably have interpreted the policy as they now claim, would apply to Stubbe as well.

The other suspect cases are three court of appeals’ cases that use the “crystal clear” language from which the court backed away in this case, and which the court referenced in a footnote as “alter[ing] the analytical focus”: Gohde v. MSI Ins. Co., 2003 WI App 69, 661 N.W.2d 470; Dowhower ex rel. Rosenberg v. Marquez, 2003 WI App 23, 260 Wis. 2d 192, 659 N.W.2d 57; and Hanson v. Prudential Prop. & Cas. Ins. Co., 2002 WI App 275, 258 Wis. 2d 709, 653 N.W.2d 915.

Of the three, the most suspect is Gohde. The court of appeals there held the policy ambiguous, even though it acknowledged the policy “does not suffer from the same organizational complexity as the Schmitz policy,” and “the Gohde’s policy index refers to UIM coverage and easily directs the insured to its terms.” Gohde, 661 N.W.2d at 474-475.

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Ambiguity not shown
by negative implication

Nevertheless, the court of appeals held, “The provisions … still must be consistent no matter how easy it is for the insured to find them.” Id. at 475. There was no inconsistency in Gohde, however, save for the absence of a reducing clause in the declarations page — arguably a mere negative implication.

Also suspect, but less so, are the other two cases, in which the court of appeals found the policies confusing, and held them ambiguous, even though there were no direct contradictions in the policies.

It is difficult to ignore, however, that, while the court backs away from its “crystal clear” language in Schmitz, it does so in a case that does not involve reducing clauses to UIM coverage.

The court has long had a hostility to reducing clauses in UIM coverage that does not extend to other liability limitations. The court would not allow them at all, except that the legislature has expressly authorized them in sec. 632.32(5)(i). Kuhn v. Allstate Ins. Co., 193 Wis.2d 50, 532 N.W.2d (1995).

Viewed in this way, the decision could thus be read as creating a dichotomy, in which clauses that reduce UIM coverage are held to a higher standard than other liability limits.

– David Ziemer

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David Ziemer can be reached by email.

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